Paytm Stock: Jefferies Reaffirms 'Buy' Rating Despite Challenges

Despite regulatory challenges with Paytm Payments Bank, Jefferies reaffirms its 'Buy' rating for Paytm, anticipating strong revenue growth and improved profitability driven by financial services and payments.

Key Points

Jefferies maintains a 'Buy' rating for Paytm, projecting continued growth and profitability.
Paytm has already implemented structural changes following regulatory actions on Paytm Payments Bank.
Jefferies forecasts a 22 per cent revenue CAGR for Paytm between FY26 and FY28.
Paytm's profit after tax is projected to reach nearly Rs 1,700 crore by the end of FY28, according to Jefferies.
Scale-driven efficiencies are expected to drive margin expansion for Paytm.

Global brokerage firm Jefferies has reiterated its "Buy" rating on Paytm (One 97 Communications Ltd), stating that the company's growth engine and profitability will remain intact despite regulatory action on its associate entity Paytm Payments Bank Ltd (PPBL).

The company has maintained its price target of Rs 1,350, implying an 18 per cent upside.

Paytm's Structural Changes After Regulatory Action

In its latest report, Jefferies stated that Paytm had already undertaken comprehensive structural changes over the past two years, following the regulator's 2024 restrictions on PPBL. These include shutting down the wallet business tied to the bank, migrating UPI handles to other partner banks, terminating inter-company agreements, and writing off its investment in the banking entity.

Post the central bank's action, PPBL's board was reset, with a new chief executive being brought in, the brokerage firm noted.

Low Incremental Impact on Paytm

With these structural changes already complete, the brokerage said the licence cancellation itself has a low incremental impact on Paytm, with all of the company's services continuing to operate normally, indicating no operational reliance on the banking entity.

Revenue Growth and Profitability Projections

Jefferies expects Paytm to deliver a revenue compound annual growth rate (CAGR) of around 22 per cent over FY26 to FY28, led by strong momentum in the financial services distribution business, which is projected to grow at approximately 28 per cent, alongside sustained growth in the payments business.

The report also outlines a clear profitability trajectory, with Paytm's profit after tax (PAT) projected to touch nearly Rs 1,700 crore by the end of FY28. It also expects contribution margins to stay in the 55-56 per cent range, with adjusted EBITDA margin to improve to 16 per cent by FY28 end.

Scale-Driven Efficiencies and Margin Expansion

Jefferies added that Paytm's business model is entering a phase where scale-driven efficiencies are expected to drive margin expansion, supported by growth across both merchant payments and financial services offerings.

Maintaining its "Buy" rating, Jefferies positions Paytm as a company that has completed a structural reset, with its core business fully operational and well placed to deliver sustained growth and improved profitability in the coming years.

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